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Northwest Iron and Steel is considering getting involved in electronic commerce. A modest e-commerce package is available for $30,000. The company wants to recover the cost in 2 years. Find the equivalent amount of new revenue that must be realized every 6 months at an interest rate of 3% per quarter using a factor formula, and a single-cell spreadsheet function that includes an EFFECT function.
The equivalent amount of new revenue that must be realized every 6 months at an interest rate of 3% per week is:_________

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Tundexi

Answer:

$8,693

Explanation:

Effective annual interets rate: AI = (1+i/m)^n - 1

i = 3*2=6%, m = 26

AI = [1+6%/26]^26 - 1

AI = 1.0617 - 1

AI = 0.0617

Let semi annual income be $X. So, present value of four semiannual income will be aggregated to get principal invetsed money of $30,000

30,000 = ∑[X/1.0617^n}

30,000 = 3.451 * X

X = 8693.132425383947

X = $8,693

Therefore, firm have to earn $8,693 after every 6 months at an interest rate of 3% per week to recover $30,000 initial investment in 2 years

The firm has to earn $8,693 after every 6 months at a rate of interest of  3% per week to recover $30,000 initial investment in 2 years.

What do you mean by present value?

Present value(PV) is the present value of future cash flows or cash flows provided for a specified amount of return. Future cash flows are reduced by the discount rate, and when the discount rate is high, the present value of future cash flows decreases.

As per the given information:

[tex]\rm\,Effective \;annual \;interest \;rate: AI = (1+\frac{i}{m} )^{n} - 1\\\\i = 3\times2=6\%, \rm\,m = 26\\\\AI = [1+\dfrac{6\%}{26} ]^{26} - 1\\\\AI = 1.0617 - 1\\\\AI = 0.0617[/tex]

Let semi-annual income be $X.

So, the present value of four semiannual incomes will be aggregated to get principal invested money of $30,000

[tex]30,000 = \rm\,Summation[\frac{X}{1.0617} ^{n}]\\\\30,000 = 3.451 \times \rm\,X\\\\X = 8693.132425383947\\\\X = \$8,693[/tex]

Hence, the firm has to earn $8,693 after every 6 months at a rate of interest of  3% per week to recover $30,000 initial investment in 2 years.

Learn more about present value, refer:

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